Then and Now
We asked ourselves a research question that we would like to share with you. Were our founding fathers dealing with anything economically that is very similar to now? The answer is yes. They were dealing with a massive government bailout a few years before 1776 of the East India Trading Company in which Parliament had to bail them out. They had a big corruption scandal in the nation of India, the largest market at the time. India exported cotton and tea. We got a lot of the tea and were paying too much. Our 2008 financial crisis and the way we worked through it is very similar to what they had to deal with in regards to the price impact.
On Friday, the U.S. announced 25% tariffs on 800 Chinese goods. At the same time China is lobbying the same tariffs against the United States. We are also looking closely at the Fed. How aggressive will the Fed be for the second half of the year? The one item not many people are talking about is the record debt level for American companies. The debt level is currently at 6.73 trillion dollars. High interest rates have an impact because cash proceeds will go towards paying off debt. The big question is whether it’s fixed or floating rates? The floating rate market is much smaller than the fixed rate market. What will be fascinating to see is as rates go up, do companies run to lock in higher rates and shift their floating rates to fixed rates?
Over the weekend, Mexico elected a new president in Andrés Manuel López Obrador. He is uniquely socially conservative and economically liberal. This is a rough combination for markets because it throws in the chance of higher regulation across the board. Also, now we have a new negotiating partner south of the border that doesn’t seem to like NAFTA. This will be something to keep an eye on since he will be in power for the next 6 years.
Merger and Acquisition
We had a great 2nd quarter. In fact, it was one of the best in the last 10 years of the current expansion. Also, merger and acquisition activity is on a record pace. This is important because it’s showing that the consumer, business, and government are flowing in the positive direction. In addition, inventory levels, as well as exports, are rising.
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